New Executives at Alcatel-Lucent Pledge to Stand By Merger

By David Jolly

Alcatel-Lucent’s new top executives vowed Tuesday to push forward with the integration of the troubled French-American company, saying there was no possibility that the deal that created it would be unwound.

“We must deliver on the merger,” Ben Verwaayen, the former head of BT, who was appointed Tuesday to succeed Patricia Russo as chief executive, said at a meeting with a small group of journalists. Acknowledging that there remained “a divided Alcatel-Lucent,” he said, “We need to move quickly to become an integrated company.”

Alcatel-Lucent, one of the world’s largest suppliers of telecommunications equipment, was formed from the November 2006 combination of Lucent Technologies, based in Murray Hill, New Jersey, and Alcatel, based in Paris. The company had said July 29 that the architects of that merger – the chief executive, Russo, and Serge Tchuruk, the chairman – would step down, following widespread investor dissatisfaction with their performance.

Alcatel-Lucent has cut 16,500 jobs and lost roughly $7 billion since the merger.

At the meeting with journalists, Verwaayen sought to reassure employees that he had not come to the job to carry out mass layoffs, saying, “I’m no fan of big reorganizations.”

But he noted that the company had to react to rapidly changing conditions. “We have to rethink very carefully where we put our investments in dollars, pounds and euros, and also where we put our best people,” he said.

Alcatel-Lucent also said Philippe Camus, 60, would take over Oct. 1 as nonexecutive chairman. Camus, currently co-managing partner of Lagardere SCA, a media company, is a charter member of the French establishment. He was previously a co-chief executive of European Aeronautics Defense & Space, the parent of Airbus.

Camus told the newspaper Le Monde that the French government had played no role in the selection of the new officials, but that President Nicolas Sarkozy’s office had been kept abreast of the negotiations.

Verwaayen, 56, who is Dutch, speaks fluent French, in contrast to Russo, who was never entirely comfortable in the language. Alcatel- Lucent operates in 130 countries and, like many global enterprises, its language of business is English.

Even as Russo struggled to bring together the vastly different cultures of the two companies amid a tough business climate, her difficulties were compounded by the fact that, as the first woman to run a company listed on the CAC 40, she had to make her way in the clubby, male-dominated world where French business and politics overlap. Alcatel-Lucent’s global headquarters is only a few blocks away from the Elysee presidential palace and across the street from the headquarters of Sarkozy’s party, UMP.

Verwaayen brings to the company his experience of having been a customer of Alcatel-Lucent, as well as its rivals Ericsson, Nokia and Huawei. He said he would spend the next few months consulting with clients as the company rethinks how it deploys its resources.

“What he needs to do is find out from customers what they want and come back with a credible plan by the end of October,” Alexander Peterc, an analyst at Exane BNP Paribas, said. “Then he has to sell the vision to clients and shareholders.”

Thomas Langer, an analyst at WestLB in Dusseldorf, said the new team would quickly face pressure to bring results.

“My take is that there will be another round of reorganization that will unfortunately come with more restructuring,” he said.

Alcatel-Lucent’s CDMA network business in the United States, which provides cellphone access, is declining rapidly. Networks based on Code Division Multiple Access, a mobile-network technology that was a major part of the portfolio that Lucent Technologies brought to the merger, are losing ground globally to GSM, or Global System for Mobile Communications, and another standard called CDMA- A. Nonetheless, the CDMA business contributes a significant part of the company’s revenue.

The challenge for the company is to increase its share of the market for 3G networking equipment, Peterc said.

The company also faces a decision over whether to sell its stake in Thales, a defense contractor, that is worth about euro 1.5 billion, or $2.3 billion. The stake, which analysts say could be used to pay down debt or fund the acquisition of new technology, is not currently for sale, Camus said.

Though the company has not produced a quarterly profit since the merger, Russo stands to receive about euro 6 million worth of stock tied to performance targets. Verwaayen will receive an annual base salary of euro 1.2 million, with the possibility that a performance bonus would raise it to as much as euro 3.6 million.

The news that new executives would be appointed was first reported by the French newspaper Les Echos and by The Wall Street Journal.

Shares of Alcatel-Lucent slumped Tuesday, falling 3.6 percent, but analysts said some of the weakness could be explained by the news that the company is being removed from the DJ Euro Stoxx 50 index.

Originally published by The New York Times Media Group.

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